Bank of England ‘should be able to freeze house prices for five years’

The Bank of England should be given expansive new powers to halt house price inflation for five years according to the left-wing think tank the Institute for Public Policy Research.

The central bank, which currently works to hold general inflation at 2 per cent, should be able to impose mortgage restrictions for at least five years, the think tank proposed.

This would impact home buyers ability to afford ever increasing prices and allow wages to catch up – reducing the near record gap between earnings and house prices that currently exists.

The Bank of England should be given expansive new powers to halt house price inflation according to think tank IPPR

Skyrocketing house price rises has been one of the defining trends of the UK economy since the 1980s, with a large slice of the economy linked to the property market.

While the move may make it easier for first time buyers to get on the property ladder, it would certainly prove controversial, doing damage to the conventional wisdom that investing in property is ‘as safe as houses.’

It could also prove unpopular with existing owners who feel they have more to gain from their current home rising in value than they do from the price of their next one staying steady.

Mark Hayward the chief executive of Property Mark warned that such a policy could have ‘unintended consequences’.

‘Excessive house price growth is certainly not something we want to see, but homebuyers make purchases on the basis of capital appreciation and the belief that their investment will be protected and enhanced,’ he said.

‘We encourage all measures to help first-time buyers get onto the housing ladder, but with property transactions at an already low level, this sort of tampering could have unintended consequences.’

Mortgage rates have tumbled to record low levels in recent years, with borrowers able to fix for two years at less than 1.5 per cent or five years at just over 2 per cent.

While this makes borrowing the large sums needed to match high house prices easier, it also enables values to keep shifting up.

For many first-time buyers and prospective home movers the biggest barrier to buying a home is raising a deposit, however. According to Nationwide’s index the average home costs £215,000 – meaning even a 10 per cent deposit is £21,500.

House prices are near record levels when compared to wages and have only been more expensive at the peak of the 2000s boom.

While the rate has slowed in recent months, house prices continue to increase in value.

The average UK home rose in price by 2 per cent in the year to June, according to the Nationwide house price index.

A slew of government polices such as the second home surcharge have been introduced to dampen down the property market, but with little obvious effect.

Low interest rates, which make borrowing for a mortgage cheap, a shortage of new builds and houses being seen as an investment rather than just a place to live, have kept prices up.

It is not the first time it has been proposed that the Bank of England should have its remit expanded.

The Shadow Chancellor John McDonnell suggested that if Labour were elected the Bank would be given a yearly target to increase productivity by 3 per cent.

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